Psilos Partner Sees Opportunity in ObamaCare Exchanges

The state and federal health-insurance exchanges central to ObamaCare have been getting a bad rap this week, as millions of consumers flocking to websites have caused crashes and delays.

Psilos Group Managers

Lisa Suennen

But when the dust settles, the exchanges will present opportunities for businesses to save money, for entrepreneurs to develop new technologies and for investors to reap returns, said venture capitalist Lisa Suennen, whose firm Psilos Group has made a number of investments over the years in startups that do business with or alongside the insurance industry.

“What has happened this week is not that different from when TicketMaster puts Rolling Stones tickets up for sale,” Ms. Suennen said. “There’s a crash… Sometimes Amazon goes down briefly. It’s a news story for about ten minutes, and then you move on.”

In the case of the exchanges—some of which are operated by states, and others by the federal government—moving on will mean finding ways to make the government-run exchanges work better, or launching private exchanges that could become a viable alternative to what the government offers, she said.

Psilos Group backed Extend Health Inc., a startup company that offered one of the world’s first private health-insurance exchanges. When the company was bought last year by Towers Watson & Co. for $435 million, Psilos got back ten times what it put into the company, Ms. Suennen said.

General Motors Corp. decided to put its employees on a private exchange run by the combined entity, and saved hundreds of millions of dollars by determining their health-care spend in advance and making use of discounted rates from local insurers, she said.

Private exchanges, like those operated by Towers Watson and rival company Aon Plc., which snagged Walgreens as a customer, are on the rise, Ms. Suennen said.

And just as startups like Castlight Health Inc., PokitDok Inc. and Benefitter Inc. have been able to ride a wave in helping states set up government-run exchanges, a new crop of startups may emerge to launch, manage and improve private exchanges in the same way, she said.

“This is going to become the common way for people to buy insurance,” she said. “So these exchanges are going to need new entrants [in the health insurance business], new services, new ways to educate and send information, new customer service, financial transaction management, and other things.”

Health insurers, whether they are selling their wares on public or private exchanges, have found they need to change their business models overnight, she said, going from many years of business-to-business selling to suddenly becoming a business-to-consumer play.

“They need help,” Ms. Suennen said. “This is a whole different world for them. [Startups] need to figure out solutions, for how these insurers are going to communicate and help members make choices, for helping these insurers provide customer service.”

While companies like GetInsured.com—a startup backed by Bessemer Venture Partners and several other firms that built California’s online health-insurance exchange—are seeing their ship come in with the official launch of ObamaCare, a new crop should be ready to seize the day as private exchanges begin to grow in popularity, Ms. Suennen said.

“These private exchanges save companies so much money it’s not even funny,” she said. “GM was able to write of billions of dollars in liabilities off their balance sheets, when they went to a private exchange. See what happens when more people begin to realize that.”

About Venture Capital Dispatch

Produced by the editors of Dow Jones VentureWire, Venture Capital Dispatch tracks the fast-moving developments at the intersection of high-tech innovation and venture capital finance. Featuring the VentureWire reporting team in the Silicon Valley, New York, Boston and Shanghai tech centers, Venture Capital Dispatch provides insight into the newest start-ups and latest trends in venture capital investing. Write us at VCdispatch@dowjones.com. For more information on Dow Jones products covering venture capital and other financial markets, go to http://pevc.dowjones.com.